March 2, 2018 / 5:15 PM / 2 years ago

Breakingviews - BlackRock puts gun-complex boards in crosshairs

Larry Fink, Chief Executive Officer of BlackRock, takes part in the Yahoo Finance All Markets Summit in New York, U.S., February 8, 2017. REUTERS/Lucas Jackson

NEW YORK (Reuters Breakingviews) - The world's largest fund manager has put those who make or sell America’s preferred weapon of mass murder in its crosshairs. On Friday BlackRock, which oversees more than $6 trillion, outlined steps to ensure the three publicly traded arms manufacturers in which it owns stock make "a positive contribution to society." It won't solve America's gun-violence epidemic, but by engaging with gunmakers and distributors rather than divesting, BlackRock provides a blueprint for how shareholders can bring about social change and safeguard their investments.

The Feb. 14 massacre of 17 students and teachers at a Florida high school by a young man wielding a Smith & Wesson assault-style rifle galvanized consumers and companies like no previous gun-related tragedy – not Sandy Hook, not Las Vegas, not Orlando. The country’s largest retailers, airlines, rental-car outfits and hotel chains responded by changing their policies on firearms sales or cutting their affiliations with the National Rifle Association.

But BlackRock is in a unique position, one of both clout and inflexibility. As the largest shareholder in the three publicly traded consumer-arms merchants, including Smith & Wesson parent American Outdoor Brands, it bears some complicity in providing capital to fund their operations, including the production of AR-15s. Yet because BlackRock’s customers own those shares through passive funds designed to mimic indexes, such as the Russell 2000 of small-cap companies, it can’t simply sell stock and walk away.

After weeks of considering its role, which Breakingviews first highlighted the day after the shooting, Chief Executive Larry Fink has come up with a plan. BlackRock will pose more than a dozen questions on guns to manufacturers and distributors. These range from asking "What steps do you take to support and promote gun safety education at the point of sale?" to "What steps do you take to support the safe and responsible use of your products?"

True, for the majority of Americans who in recent polls say they want enhanced gun-safety regulation, a strongly worded letter with some pointed questions may not sound like much. But look again at BlackRock’s note. The firm says that “another key aspect of investment stewardship is voting on specific proxy proposals and on the election of a company’s directors.” That’s finance-speak for: If these companies fail to respond, we will vote to fire their directors, a class that includes chief executives, when the annual meeting comes along.

And that’s not an idle threat. Last year BlackRock, along with rival index-fund manager Vanguard, used this power to force Exxon Mobil’s board to report on what it was doing to combat climate change. Again, BlackRock is not curing gun violence. That’s a job for policymakers. But as legislators fail to act, it’s one small step in that direction.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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